Its approaching that time of month again … when a currency moves and someone nods sagely and says ‘month end flows’. Maybe its my inner cynic surfacing but it’d be nice to get the heads up on these supposed ‘month end flows’ and their currency impact before they actually happen. Its not as if we don’t know when the end of the month is coming up, is it? Someone figured that out a few thousand years ago …

OK, so having got that off my chest … here are some analyst comments that deserve kudos ’cause they are explicitly giving us an expected impact ahead of time … Nice one!

From Société Générale on the impact expected on the euro:

  • “Demand from foreign reserves is likely to be a lot weaker than expected as the threat of QE spooks reserves into staying in USD, keeping the UST curve well bid, particularly in the front end and distorting the price signal even more”
  • There will be divergent flows from portfolio rebalancing (demand for euros) and diversification

On portfolio rebalancing:

  • “This will be weaker if tactical asset allocators increase their EUR short position or more broadly if they decide not to rebalance their portfolios leaving them longer equities and shorter EUR”

And:

  • “the threat of ECB QE and negative rates in the front end of treasuries in Germany or France, reserve managers with risk averse profiles will likely be extending duration as much as they can in EUR, not buying and even selling to some very mild extend”
  • If risk management prevails euro demand between $1.32 and $1.30 may be a lot weaker than anyone thought “as mean reversion behaviour at cheaper levels of EURUSD fails to kick in – Month-end should be the revealing moment”

–

From Standard Bank:

  • Watch month-end and quarter-end equity rebalancing flows as equity investors re-align equity weightings
  • US stocks have outperformed eurozone stocks in the past month and quarter so “traders will be forced to buy euros – in order to buy euro stocks – so that weightings are returned to neutral levels”

BUT …. adds that there are many other factors to consider that are influencing currencies

  • Doubts that equities alone will be enough to turn the euro’s tide
  • Thinks that the euro will continue trending lower